The Royal Bank of Canada
has issued a retraction after a research report by one of its most senior
asset managers appeared to support the claims of conspiracy theorists that
central banks have secretly connived to keep the price of gold low.

The eight-page report published
as a research note by the investment division of the bank speaks of "increasing
evidence of unsustainable gold price manipulation" and says the evidence
of secret price fixing is "overwhelming".

The report refers to the
practice in the past, when the price of gold was pegged to currencies,
of central banks dumping gold to keep the price down. "Today, instead
of the overt action of yesteryear, it is covert because the market is allegedly
free," the report says.

It goes on to claim that
instead of selling physical gold the banks have sold derivatives, called
hedging, leaving them owing far more metal than they control and giving
them an interest in the price of gold continuing to fall.

"The size of the short position,
officially acknowledged to be more than 5,000 tonnes by the bullion bank
apologists, is thought to be well over 10,000 tonnes and may exceed 15,000
tonnes," the report adds.

The claims were seized on
by fringe groups such as the Gold Anti-Trust Action Committee which said
it showed that mainstream investors were coming round to their view that
central banks secretly act to keep a lid on the price of gold in order
to support the dollar.

"The establishment in the
gold world is coming around to our central premise," Chris Powell, secretary
of GATA, told his members last week. "Central banks and particularly the
US Treasury Department have been colluding surreptitiously and desperately
to suppress the gold price and manipulate the gold market," he added.

The report has caused embarrassment
to Royal Bank as many of its clients and some of the biggest companies
on the Canadian stock exchanges are gold miners, including Barrick Gold
Corp, the world's second largest producer which is also the world's biggest
hedger.

Bank of Novia Scotia is one
of the largest bullion banks in the world and the Canadian central bank
has been a consistent seller of gold over the past decade. Mark Arthur,
head of Royal Bank Investment Management, issued a statement saying the
report was produced for "internal use" and "in no way reflects the
views of Royal Bank".

However, the report is by
John Embry, a senior figure at RBC who sets strategy for the bank's $38bn
funds under management and chairs its stock selection committee as well
as running its Royal Precious Metals fund. He was not available for comment.

Embry predicts in the report
that the price of gold is set for further steep rises. "Those with a vested
interest in containing the price of gold - central banks, bullion banks,
heavily hedged gold companies - will not die easily but the tide is moving
strongly against them and the embedded short positions could catapult the
gold price higher."